Having taken the decision to scrap the previous mini budget released in September, Chancellor of the Exchequer Jeremy Hunt released the new autumn budget – officially called the Autumn Statement 2022 – with key aims to promote stability, growth, and public services.
Inflation remains high, with central banks responding by raising interest rates, and the war between Russia and Ukraine shows no sign of a resolution in the short term. This is against the backdrop of high government debt incurred from the Covid-19 pandemic and the ongoing energy crisis. So, the autumn budget for 2022 comes at a time of significant economic challenges on a global level.
The statement delivered by Mr Hunt therefore focused on stability that relies on fiscal sustainability – with plans to ensure the national debt falls as a proportion of the economy over the medium term. The reduced debt should allow for more significant investment in public services, support the Bank of England’s efforts to curb inflation, and thereby give greater confidence to businesses as they continue to invest and grow in the UK.
Due to some of the more significant changes put forward by the budget, particularly the tax rises, it is expected that all individuals and companies with economic ties to the UK will be affected to some degree.
Income tax, National Insurance Contributions and other relevant tax rates
The income tax personal allowance, higher rate threshold, national insurance contributions (NIC), upper earning limit and upper profits limit, were already frozen at 2021 levels until April 2026 – this will now be maintained for an additional two years, until April 2028. Freezing allowances and thresholds is often referred to as ‘tax by stealth’ since it increases taxation without putting up tax rates. This will now result in thousands more people paying more tax to the Treasury as wages increase alongside inflation.
The NIC threshold was raised from £9,880 to £12,570 in July, and the Social Care Levy has now been reversed, which is expected to save almost 30 million workers an average of £480 for the 2023-24 tax year. The social care levy was a 1.25% tax to help tackle NHS waiting lists and aid health care and was expected to raise around £13 billion a year.
As had already been confirmed, Corporation Tax will increase to 25% for businesses that make over £250k in profits from April 2023. Although this is one of the more significant U-turns from the September budget, 25% is still the lowest rate among all other G7 countries, keeping the UK competitive internationally.
Additional tax rate threshold, dividend allowance and capital gains
The autumn budget states that “the fairest way to restore the public finances is to ask everyone to contribute a little, with those on the highest incomes and those making the highest profits paying a larger share”.
With this principle in mind, the additional rate tax threshold will be reduced from £150,000 to £125,140 as of 6 April 2023. The autumn statement also reduces the generosity of the Dividend Allowance and the Capital Gains Tax Annual Exempt Amount.
The Dividend Allowance will be reduced by half – from £2,000 per tax year to £1000 from April 2023 – and halved again to £500 in 2024. This will particularly impact small-scale investors and retirees who depend on the dividend income from their shareholdings.
The Capital Gains Tax Annual Exempt amount will be more than halved – decreasing from £12,300 to £6,000 on 6 April 2023 – and similarly reduced again to £3,000 in April 2024. If you were planning on selling any of your investments in the near future, doing so before the 2023 tax year would allow you to take advantage of the higher threshold.
Prevention of capital gains tax avoidance
In the 2023 Spring Finance Bill, the government will introduce legislation to address tax avoidance linked to capital gains. The anti-avoidance provisions will broadly state that shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK.
This is likely to affect those with a material interest in both the UK and the non-UK company and where the exchange is carried out on or after 17 November 2022.
The cuts in Stamp Duty Land Tax announced on 23 September increased the threshold from £125,000 to £250,000 for residential property purchases in England, Wales and Northern Ireland. The threshold was also increased for first-time buyers to £425,000, but these changes have now been declared temporary – due to end on 31 March 2025.
The Annual Charge for Enveloped Dwellings (ATED) will be uplifted by 10.1% for the 2023-24 charging period. ATED is an annual tax typically paid by companies that own UK residential property with a value greater than £500,000. The uplift is a routine change that will be implemented in the usual way through a Treasury Order.
Similar to income tax and NIC, the inheritance tax (IHT) thresholds will remain frozen for a further two years until April 2028. The general inheritance tax nil rate band remains at £325,000 (unchanged since 2009) and residential nil rate band at £175,000. Again, this two-year extension will result in more families getting caught in the IHT net and losing more of their inheritance to tax, and it’s not just wealthy families who are affected these days.
The UK autumn budget 2022 – Pushing forwards
With a new Prime Minister, a new Chancellor, and a fresh budget designed to tackle the various economic challenges, hopefully, these tough measures will achieve the growth and stability that the government is aiming for. It will, however, undoubtedly be a difficult winter for many.
With regard to taxation, even if tax rates don’t go up over the coming years, the fact that so many allowances and thresholds are frozen will have long-term implications. For income tax, these figures will remain unchanged until the 2027/2028 UK tax year, which will actually have a more significant impact as the years progress. Getting reliable financial advice is more important than ever.
Blevins Franks has a proven record of providing an invaluable service to our clients for more than 45 years, and has done so throughout several periods of economic uncertainty and tax increases. Our advisers are located throughout Europe and have the knowledge and expertise to provide you with financial peace of mind.
Contact us now.